“RBI COVID – 19 REGULATORY COMPLETE PACKAGE”

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 “RBI COVID – 19 REGULATORY COMPLETE PACKAGE”

The Reserve Bank of India (RBI) has released 21st Issue of the Financial Stability Report (FSR), on 24th July 2020 which reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, and the resilience of the financial system in the context of contemporaneous issues relating to development and regulation of the financial sector.

RBI has discussed about various relaxation due to COVID 19 via Press Conferences.

Regulatory package – COVID-19

Liquidity Measures Rationale/Impact
Targetedlong-termrepooperations(TLTRO)-RBI conductedtermrepoauctionsofupto3-yeartenor foratotalamountofRs. 1,00,000croreforinvesting in corporate bonds, commercial papers and non- convertibledebentureswithconcessioninMTM guidelines. Borrowingcostsinfinancialmarketshavedroppedtotheir lowestinadecadeonthebackofabundantliquidity.Interest rateson3-monthCPs(NBFC),3-monthCPs(non-NBFC)and 3-monthCDshavesoftenedbyaround320bps,365bps,472 bps,respectivelybetweenMarch23,2020andJune30,2020. Thespreadof3-yearAAA-ratedCorporateBond(CB)over similar tenor government securities has decreased from 320bpsonMarch26,2020to114bpsonJune26,2020for NBFCs.Lowerborrowingcosts,coupledwithdeployment ofTLTROfunds,haveledtorecordprimaryissuanceof corporatebondsof`2.09lakhcroreinthefirstquarterof 2020-21.
Toenablebettertransmissionofitsmonetarypolicy, RBIintroducedLongTermRepoOperation(LTRO) underwhichRBIconductedtermreposofoneyear andthreeyeartenorsatpolicyreporate.

(*LTROsof`1lakhcroreeachwereannouncedon Feb06,2020andMar16,2020ofwhichauctionfor atotalof`1,25,000croreshavebeenconductedso far).

Abundantliquidityconditionsalongwith3-yearLTROshave anchoredtheshort-termG-secyieldsclosertothepolicyrepo rate.The3-monthT-Billyieldhasdroppedaround195bps sinceLTROannouncementinFebruaryandhasgenerally remainedlowerthanthereversereporateconsistently sinceMarch.The3-yearG-secyieldtoohasdroppedby158 basispointswhilethe10-yearyieldhasdroppedby74bps betweenannouncementofLTROsandJuly10,2020.

Thegovernmentsecuritiesmarkethasremainedresilient andtheG-Secyieldshaveremainedintight-rangedespite significant enlargement of government borrowing programmeandincreaseintheborrowinglimitofstate governments.

Thepolicyreporatewasbroughtdownfrom5.15 percentonMarch27,2020to4percentonMay22, 2020.TheMarginalStandingFacility(MSF)ratewas reducedfrom5.40percentto4.25percentwhilethe reverse repo rate under the Liquidity Adjustment Facility(LAF)wasreducedfrom4.90percentto3.35 percent.TheMonetaryPolicyCommittee(MPC)also decidedtocontinuewiththeaccommodativestance foraslongasitisnecessarytorevivegrowthand mitigate the impact of COVID-19 on theeconomy whileensuringthatinflationremainswithintarget. To lower borrowing costs and revive growth prospects.
CRRreducedby100basispointsto3percentof NDTL.UnderMSF,bankswereallowedtoborrowby dippingupto3percentintoSLR. ReductioninCRRledtoinjectionofliquidityofaround `1,37,000croreintothebankingsystemwhileenhancement inMSFceilingenabledthemforbettermanagementofday to dayliquidity.
 

 Date Wise Regulatory Measures taken by RBI

Date Regulatory Measures Rationale
March 27,2020 Deferment of interest on working capital facilities. Minimise the economic fallout.
March 27,2020 Easing of working capital financing. Minimise the economic fallout.
March 27,2020 Deferment of implementation of the net stable funding ratio (NSFR). Regulatory relief for banks.
March 27,2020 Deferment of last tranche of CCB. Regulatory relief for banks.
March 27,2020 Bankspermittedtoallowamoratoriumof 3monthsonpaymentofinstalmentswith respecttotermloans. Minimise the economic fallout.
April 1, 2020 Extension in the realisation period of export proceeds. For supporting exporters.
April 1, 2020 Extension in the implementation of a countercyclicalcapitalbuffer(CCyB)byone year. Regulatory relief for banks.
April 17, 2020 IncreaseinWaysandMeansadvanceslimits ofstates/UTsby60percentoverandabove thelevelsasonMarch31,2020. To provide greater comfort to states to undertake COVID-19 containmentand mitigation efforts.
May 22, 2020 Extension of timelines for export credit and remittance for imports. Support exports/imports.
May 22, 2020 EximBankextendedalineofcreditof`15,000 crore. Meet  Exim  Bank’s         foreign         exchange requirements.
May 22, 2020 Moratorium extension for additional 3 monthsfortermloanstillAugust31,2020 withrelaxationinassetclassificationnorms. Minimise the economic fallout.
May 22, 2020 Deferment of interest on working capital facilities for an additional 3 months till August31,2020andtheinterestdeferred canbeconvertedintofundedinterestterm loanstobepaidbeendofthefinancialyear. Relaxation of asset classification normspermitted. Minimise the economic fallout.
May 22, 2020 Ease of computation of working capital finance till March 31, 2021. For supporting borrowers.
May 22, 2020 Extensionofresolutiontimelinestoexclude theperiodfromMarch1,2020tillAugust31,

2020.

Regulatory relief for banks.
May 22, 2020 Largeexposureframeworkeasedforlimiton groupexposures. For supporting companies.
May 22, 2020 Rules governing withdrawal from the Consolidated Sinking Fund (CSF) forstates eased to meet redemption of market borrowings. For supporting state governments.

The Securities and Exchange Board of India(SEBI)

Date Regulatory Measure Rationale
March 20, 2020 ForstocksintheF&Osegmentwithcertain criteria,marketwidepositionlimits(MWPL) revisedto50percentoftheexistinglevels. Therateofmarginforsuchstocksinthecash marketsegmentincreasedtoaminimum of 40percentinaphasedmanner.

Fornon-F&Ostockswithcertaincriteria, minimummarginrateinthecashmarket segmentincreasedinaphasedmannerto

40 per cent or maximum intra-day high- lowvariationsduringthelastonemonth, whichever ishigher.

Toensureorderlytradingandsettlement, effective risk management, price discovery andmaintenanceofmarketintegrity.
March 20, 2020 Position limits (short and long) in equity index derivatives revised. For effective risk management.
March 20, 2020 Introductionof15minutescoolingperiod beforeflexingofpricebandsforderivatives stocksintroducedinCashMarketandF&O segment. For effective risk management.
March 23, 2020 Relaxation in timelines for certain periodic compliances with regulatory requirements by trading members / clearing members. Toreducethecomplianceburdenonmarket participants.
March 23, 2020 Date of implementation of certain policy initiatives pertaining to risk-management frameworkforliquidandovernightfunds, investment norms for mutual funds and valuationofdebtandmoneymarketsecurities extended. To provide temporary relaxation in timeline and compliance requirement.
March 26, 2020 Reduced the trading time in commodity derivative segments of domestic exchanges up to 5.00 pm. To ensure orderly trading and settlement.
March 26, 2020 Timelinesrelatingtoholdingofcommittee meetings such as the nomination and remuneration committees and the risk management committee and stakeholders relaxedbyaperiodof3months. To reduce compliance burden.
March 26, 2020 Companies required to publish certain informationsuchasnoticeforboardmeetings andfinancialresultsinnewspapers.Theyare exemptfromtherequirementsofpublication ofadvertisementsinnewspapers. To reduce compliance burden.
March 27, 2020 The requirement of stock exchanges to disclose open interest and turnover for various categories of participants at the commodityandmarketlevelsonadailybasis deferred. Toreducethecomplianceburdenonmarket participants.
March 27, 2020 Permitted exchanges/clearing corporations to designandimplementtheirownframeworks for determining the final settlementprice (FSP)orduedaterate(DDR)inthecommodity derivativessegment. To ensure orderly trading and settlement.
March 27, 2020 Relaxation on change in fresh issue size (IPOs/ rights issues/ FPOs), timeline for compliance with certain provisions of SEBI (SAST) Regulations, 2011 andprovisions relatedtorightsissuesascontainedinSEBI (ICDR) Regulations,2018. To provide temporary relaxation in timeline and compliance requirement.
March 30, 2020 Extension of timelines for submission of monthly reports by portfolio managers and the due date for regulatory filingsfor alternativeinvestmentfundsandventure capitalfunds. To provide temporary relaxation in timeline and compliance requirement.
March 30, 2020 Relaxations for CRAs with regard to recognition of default for corporates and extensionintimelinesforcompliancewith certainprovisionsofSEBI. Toreducethecomplianceburdenonmarket participants.
March 30, 2020 Relaxation for FPIs from therequirement of submitting original and/or certified documents(includingKYCdetails)toDDPs/ custodians. For temporary relaxations with respect to compliance requirement.
March 30, 2020 Regulatorylimitofborrowingformutualfunds for meeting excessive redemption pressure and temporary liquidity requirements revised from20percentto40percentsubjectto certainconditions.Relaxationalsoprovided incertainreportingrequirementsandthe dealing roompolicy. Tomeettemporaryliquidityrequirements.
March 30, 2020 Extendedthevalidityperiodforallschemes whereobservationletterwasissuedbySEBI and was yet to be launched to one year. Also, the deadline for implementation of Stewardship Code for all mutual fundsand alternativeinvestmentfundsextended. To provide temporary relaxation in timeline and compliance requirement.
March 30, 2020 Based on SEBI’s representation on extension ofapplicabilityofstampdutyonmutualfund transactions,governmentissuedanotification todefertheapplicabilityofstampdutyby3 monthstobeeffectivefromJuly1,2020. Toprovideregulatoryrelieftoparticipants amidstpandemic.
April 6, 2020 Cut-offtimingreducedforbothsubscription and redemption in various mutual fund schemesforatemporaryperiod. To provide temporary relaxation.

The Insolvency and Bankruptcy Board of India(IBBI)

March 23, 2020 InthewakeoftheCOVID-19outbreakthe SupremeCourtorderedthattheperiodof limitation in all proceedings shall stand extendedw.e.f.March15,2020tillfurther orders. TheSupremeCourttooksuomotocognisanceof the challenge faced by the country on account of COVID-19 and the resultant difficultiesthatlitigantsarefacinginfiling their petitions/applications/suits/ appeals/ all other proceedings within the periodof limitation.
March 24, 2020 The Ministry of Corporate Affairsincreased thethresholdamountofdefaultrequired to initiate an insolvency proceeding from`1 lakhto`1croretopreventMSMEsfrombeing pushedintoinsolvencyespeciallyinthewake oftheoutbreakofCOVID-19. Increasing the threshold to preventMSMEs frombeingpushedintoinsolvencyespecially inthewakeoftheoutbreakofCOVID-19.
March 28, 2020 IBBI amended the IBBI (Insolvency Professionals) Regulations, 2016 and IBBI (ModelBye-LawsandGoverningBoardof InsolvencyProfessionalAgencies)Regulations, 2016.Theamendmentsprovideforextensions in certain timelines prescribed underthe regulations to ameliorate stakeholderspain intheinsolvencyecosysteminthewakeof the COVID-19outbreak. The amendments provide for extensions in certain timelines prescribed underthe regulations to ameliorate stakeholderspain intheinsolvencyecosysteminthewakeof the COVID-19outbreak.
March 29, 2020 IBBIamendedtheInsolvencyandBankruptcy Board of India (Insolvency Resolution Process forCorporatePersons)Regulations,2016. For providing that the lockdown period imposedbytheCentralGovernmentinthe wakeoftheCOVID-19outbreakwillnotbe countedforthepurposesofthetimelinefor anyactivitythatcouldnotbecompleteddue tothelockdowninrelationtoacorporate insolvency resolution process. This will, however,besubjecttotheoveralltimelimit provided in thecode.

Source: Financial Stability Report dated 24thJuly 2020

Disclaimer:

IN NO EVENT THE AUTHOR SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM OR ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION.

 

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